On October 26, 2016 Varian Medical Systems (NYSE:VAR) reported GAAP net earnings of $1.24 per diluted share and non-GAAP net earnings of $1.38 per diluted share for the fourth quarter of fiscal year 2016 (Press release, Varian Medical Systems, OCT 26, 2016, View Source [SID1234516087]). For the full fiscal year 2016, GAAP net earnings were $4.19 per diluted share, and non-GAAP net earnings were $4.68 per diluted share. Varian’s revenues totaled $912 million for the fourth quarter of fiscal year 2016, up 12 percent in dollars from the year-ago quarter and up 11 percent in constant currency. Varian’s revenues for the full fiscal year were $3.2 billion, up 4 percent in dollars versus fiscal year 2015 and up 5 percent in constant currency. The company ended the fourth quarter with a $3.5 billion backlog, down 1 percent from the end of fiscal year 2015 with a gain in Oncology business offset by declines in the Particle Therapy and Imaging Components backlogs.

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"The company finished the year on a strong note with solid growth in revenues and margins for both of its major businesses," said Dow R. Wilson, CEO of Varian Medical Systems. "For the fourth quarter, total company gross margin increased by nearly four percentage points over the year-ago quarter. Weak oncology orders in EMEA, where we had tough year-ago comparisons, offset gross order growth in the Americas and in Asia."

The company finished the fiscal year with $844 million in cash and cash equivalents and
$667 million of debt. Cash flow from operations was $152 million for the fourth quarter and $356 million for the fiscal year. During the quarter, the company spent $87 million to repurchase about 1 million shares of common stock.

Oncology Systems
Oncology Systems’ fourth quarter revenues totaled $678 million, up 7 percent in dollars from the same quarter of fiscal year 2015 and up 6 percent in constant currency. Annual revenues were $2.5 billion, up 5 percent in dollars from the prior fiscal year and up 6 percent in constant currency.

Fourth-quarter gross orders were $897 million, down 2 percent in dollars from the year-ago quarter and down 4 percent in constant currency. For the full fiscal year 2016, Oncology gross orders were $2.7 billion, up 1 percent in dollars and up 2 percent in constant currency. Oncology gross orders in the Americas rose 4 percent in dollars and increased 3 percent in constant currency for the fourth quarter. For fiscal year 2016, Americas gross orders rose 4 percent both in dollars and constant currency. Gross orders in Asia rose 8 percent in dollars and fell 1 percent in constant currency in the fourth quarter. For the fiscal year 2016, gross orders in Asia rose 5 percent in dollars and 3 percent in constant currency. Gross orders in EMEA fell 17 percent in both dollars and constant currency for the quarter. For the fiscal year, Oncology gross orders in EMEA fell 6 percent in dollars and 4 percent in constant currency.

"Oncology Systems generated healthy revenue growth, and strong gains in both its gross and operating margins with a favorable product mix and a sharp focus on product cost initiatives during the quarter," said Wilson. "We saw respectable gross orders growth in the Americas and in emerging markets during the quarter while facing challenging conditions in Western Europe where we had record-setting growth in the year ago period. Gross orders in North America were down 2 percent in the quarter but up 5 percent for the full fiscal year."

Imaging Components
Imaging Components revenues were $166 million for the fourth quarter, up 7 percent from the year-ago period, and $598 million for the fiscal year, down 2 percent from fiscal year 2015. Gross orders totaled $168 million for the fourth quarter, up 2 percent from the year-ago period, and totaled $571 million for the fiscal year, down 6 percent from fiscal year 2015.

"Our Imaging Components business continued to strengthen in the second half of the fiscal year with ongoing revenue growth driven in part by recent acquisitions and with solid improvements in its gross and operating margins," said Wilson. "This business has successfully weathered some severe challenges in the first half of the year and finished a fiscal year highlighted by two consecutive quarters of strong revenue growth and favorable product mix as well as several key new product introductions."

Varian intends to establish the Imaging Components business as a new, independent publicly-traded company, Varex Imaging Corporation, through a tax-free spin.

Other
The company’s Other category, including the Varian Particle Therapy business and the Ginzton Technology Center, recorded fourth quarter revenues of $68 million, up $38 million from the prior year period. Revenues for fiscal year 2016 were $163 million, up 13 percent from fiscal year 2015. During the quarter, the Particle Therapy business booked its first order for its Compact single room system. However, proton system gross orders were down from the prior year quarter and prior fiscal year when the company booked an unusually high number of orders. "While gross orders remain lumpy and timing is difficult to forecast, the sales funnel remains strong," said Wilson.

Outlook
"We believe that for the first quarter of fiscal year 2017, non-GAAP earnings for the total company, including the Imaging Components business and ramp-up costs for its separation, will be in the range of $1.03 to $1.07 per diluted share and revenues will increase by about 1 to 2 percent," said Wilson. "As we announced earlier, we will not give earnings guidance for the full fiscal year until after we have completed the separation of the Imaging Components business. For the full fiscal year 2017, we expect that Varian revenues, excluding the Imaging Components business, will rise by 3 to 4 percent. We expect that Imaging Components revenues for the full fiscal year 2017 will also rise by 3 to 4 percent."

Please refer to the attached "Discussion of Non-GAAP Financial Measures" for a description of items excluded from expected non-GAAP earnings.